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There's no bubble to predict. We know we're in a bubble. When it pops is what people predict. If you bought a traded business today for over 30 times earnings

There's no bubble to predict. We know we're in a bubble. When it pops is what people predict. If you bought a traded business today for over 30 times earnings over the age of 35, you wouldn't break even until you were retirement age. Does that sound like a good investment to you?

cplusplusfellow 5y ago
You’re not really buying actual return of investment dollars via dividends anymore. You’re buying access to market share. Companies drive revenue so that they can drive market share more than anything. Owning a piece of the economy is what folks are doing with their 35 PE share purchases, particularly if they think the revenue as a percentage of market is going to grow.
- andrewmcwatters 5y ago
  > You’re buying access to market share. What does this even mean? > Owning a piece of the economy is what folks are doing with their 35 PE share purchases, particularly if they think the revenue as a percentage of market is going to grow. If any given market shrinks in absolute terms, it doesn't matter if "market share" goes up. 100% of 5 customers is 5 customers.
- anm89 5y ago
  These are the kinds of quotes they post in the documentary about the crash to demonstrate the hubris of the time. You are essentially arguing for the financial equivalent of a perpetual motion machine.
- hyperman1 5y ago
  Do I get this right? The only way to make money from a stock is to sell it to someone else. The only reason they buy it from you is to do the same. So everybody gets richer, except the one who owns it when the bubble bursts, who loses everything. This is the definition of a ponzy scheme.
  - mike_d 5y ago
    In a Stocks 101 sense, yes. You can receive dividends from companies, use or sell your vote to influence company decisions, loan your stock in exchange for money, etc.
  - anm89 5y ago
    This is very specifically not the definition of a ponzi scheme. actually it meets literally none of the criteria of a ponzi scheme except maybe the fact that money is involved and somebody loses money. if there is a real asset involved in the scheme its just called speculation. not all speculation has anything to do with a ponzi scheme. it would be a ponzi scheme if you advertised this investment as a service and then never bought the actual underlying asset but just shuffled funds through to payout investors. so yeah, literally zero overlap with a ponzi scheme. another angle: by your definition, all investments in commodities where you don't plan to take physical delivery are ponzi schemes and all zero dividend stocks are ponzi schemes (which is wrong)
dannyz 5y ago
This assumes that the company will not continue to grow at all
MattGaiser 5y ago
If you assume no growth, then you have a point. But plenty of them are growing like weeds.
- srean 5y ago
  > But plenty of them are growing like weeds. But for how long ? A common growth model that I have seen used is exponential growth, but has this been empirically verified on historical data ? I would expect a more logistic curve growth at best. Even with the growth factored in P/E of 100 and more seems a dangerous asset to own unless I believe that I can pass the bag on for somebody else to hold. The danger is that I might end up holding the bag that no one wants to buy. Furthermore, if the expected growth was predicated on the availability of cheap capital and that does not come to pass because of interest rate hikes, then that's a problem. The P/E will likely correct to a more plausible growth rate, so unless there is an earning growth that compensates for shrinking P/E the price will fall.
- andrewmcwatters 5y ago
  If you looked at the 3000+ publicly traded US companies' price movements, you'd realize almost none of them grow. A small portion of the largest companies do, and even some of the biggest brands on Earth struggle to grow. If you bought Twitter at IPO and held and did nothing, you wouldn't have made a cent.
UncleMeat 5y ago
Businesses innovate. Few businesses will stay stagnant for 30 years and deliver the same earnings year by year like a robot.

cplusplusfellow 5y ago

You’re not really buying actual return of investment dollars via dividends anymore. You’re buying access to market share. Companies drive revenue so that they can drive market share more than anything. Owning a piece of the economy is what folks are doing with their 35 PE share purchases, particularly if they think the revenue as a percentage of market is going to grow.

andrewmcwatters 5y ago
> You’re buying access to market share. What does this even mean? > Owning a piece of the economy is what folks are doing with their 35 PE share purchases, particularly if they think the revenue as a percentage of market is going to grow. If any given market shrinks in absolute terms, it doesn't matter if "market share" goes up. 100% of 5 customers is 5 customers.
anm89 5y ago
These are the kinds of quotes they post in the documentary about the crash to demonstrate the hubris of the time. You are essentially arguing for the financial equivalent of a perpetual motion machine.
hyperman1 5y ago
Do I get this right? The only way to make money from a stock is to sell it to someone else. The only reason they buy it from you is to do the same. So everybody gets richer, except the one who owns it when the bubble bursts, who loses everything. This is the definition of a ponzy scheme.
- mike_d 5y ago
  In a Stocks 101 sense, yes. You can receive dividends from companies, use or sell your vote to influence company decisions, loan your stock in exchange for money, etc.
- anm89 5y ago
  This is very specifically not the definition of a ponzi scheme. actually it meets literally none of the criteria of a ponzi scheme except maybe the fact that money is involved and somebody loses money. if there is a real asset involved in the scheme its just called speculation. not all speculation has anything to do with a ponzi scheme. it would be a ponzi scheme if you advertised this investment as a service and then never bought the actual underlying asset but just shuffled funds through to payout investors. so yeah, literally zero overlap with a ponzi scheme. another angle: by your definition, all investments in commodities where you don't plan to take physical delivery are ponzi schemes and all zero dividend stocks are ponzi schemes (which is wrong)

dannyz 5y ago

This assumes that the company will not continue to grow at all

MattGaiser 5y ago

If you assume no growth, then you have a point. But plenty of them are growing like weeds.

srean 5y ago
> But plenty of them are growing like weeds. But for how long ? A common growth model that I have seen used is exponential growth, but has this been empirically verified on historical data ? I would expect a more logistic curve growth at best. Even with the growth factored in P/E of 100 and more seems a dangerous asset to own unless I believe that I can pass the bag on for somebody else to hold. The danger is that I might end up holding the bag that no one wants to buy. Furthermore, if the expected growth was predicated on the availability of cheap capital and that does not come to pass because of interest rate hikes, then that's a problem. The P/E will likely correct to a more plausible growth rate, so unless there is an earning growth that compensates for shrinking P/E the price will fall.
andrewmcwatters 5y ago
If you looked at the 3000+ publicly traded US companies' price movements, you'd realize almost none of them grow. A small portion of the largest companies do, and even some of the biggest brands on Earth struggle to grow. If you bought Twitter at IPO and held and did nothing, you wouldn't have made a cent.

UncleMeat 5y ago

Businesses innovate. Few businesses will stay stagnant for 30 years and deliver the same earnings year by year like a robot.